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How Might FinTech Affect Your Investments?

FinTech is one of biggest buzz words in the financial word today. It’s a short form of the words “Financial Technology” and is used mainly to describe innovations in the digital space that deal with financial services (such as making loans or processing payments).

The companies that bring about such innovations are commonly known as FinTech companies and what’s interesting here is that these firms are often not incumbent financial institutions. So, in a way, FinTech companies are often seen as disruptors.

Companies such as Ant Financial (which is a part of Chinese e-Commerce giant Alibaba), Paypal, and Lending Tree, just to name a few, are examples of FinTech companies. In the case of Paypal, it provides a platform that helps users simplify the process of making and receiving online payments.

As the FinTech movement grows, traditional financial institutions (such as banks for instance) will need to respond or they might face the risk of losing their importance in the business world. In Singapore’s stock market, there are really only three banks that are listed and they are namely DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11).

It’s worth noting that FinTech companies need not be just disruptive to traditional financial institutions – they could be complementary too. Last month, the Monetary Authority of Singapore’s Chief Fintech Officer, Sopnendu Mohanty, said in a financial industry conference that “Fintech firms are not here to challenge you [referring to traditional financial institutions]. They are here to partner you.”

There are signs that Singapore’s local banks are open to partnering with FinTech companies. In March this year, OCBC launched its The Open Vault initiative to help nurture collaborations between the bank and FinTech startups. UOB meanwhile, had set up an accelerator last November called The FinLab for FinTech startups.

Also, it’s possible for financial institutions to acquire FinTech companies outright and integrate their technologies.

Foolish Summary

FinTech could pose a threat to incumbent financial institutions. But, it’s not all bad as I had mentioned, as mutually beneficial partnerships between the two camps can happen. Developments in finance will be interesting to observe given the emergence of FinTech.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.